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TMI Blog1984 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the assessment year 1974-75 ? " The assessee maintains its accounts on the mercantile system. Its claim for deduction of a sum of Rs. 29,593 for payment of gratuity was disallowed by the ITO by his order dated September 22, 1976. However, it was allowed on appeal by the AAC, whose order was confirmed by the Tribunal. The Tribunal held that the liability relating to the year ending on June 30, 1972, in the sum of Rs. 29,593 "squarely falls under clause (b) of sub-s. (7) of s. 40A and has to be allowed The assessee claimed certain deductions in respect of its liabilities for the following accounting years : Rs. (a) Liability of the accounting year 30-6-1971. 86,928 (b) Liability of the accounting year 30-6-1972. 29,593 (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into force. Counsel refers to a decision of the Madhya Pradesh High Court in Jiwajirao Sugar Co. Ltd. v. CIT [1983] 144 ITR 729 (MP), and contends that the liability arose, not under the Kerala Industrial Employees' Payment of Gratuity Act, 1970, or the Ordinance which preceded it, but only under the Central Act. The decision of the Madhya Pradesh High Court does not support the proposition that, in so far as an assessee in Kerala State is concerned, the statutory liability for gratuity did not arise until the Central Act came into force. As stated by this court in CIT v. High Land Produce Co. Ltd. [1976] 102 ITR 803, the liability arose for the first time when the Kerala Industrial Employees' Payment of Gratuity Ordinance was promulgated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under the Ordinance, in respect of that year's liability as well as for the earlier years, de hors the number of years an employee may have completed in his service, it would be too late for him after the expiry of that accounting year to make any deduction for the earlier years. In the subsequent years, he can only make deduction for the relevant accounting year and not for the earlier years. ... " Sub-section (7) of s. 40A of the I.T. Act, in so far as it is material, reads: "40A. (7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of sub-clause (i) of clause (b) has to be understood as the accounting year 1972-73, relevant to the assessment year 1973-74, during which the amendment of 1975 retrospectively came into effect as from April 1, 1973. Sub-clause (ii) relates to a subsequent period during which deductions will be allowed on the basis of provisions made, subject to the fulfilment of the conditions mentioned under that sub-clause. Any provision made in the previous year relevant to any assessment year commencing on or after April 1, 1973, but before April 1, 1976, will be recognised for the purpose of deduction to the extent of the amount admissible as defined under Explanation 1 and subject to the three conditions mentioned under the sub-clause. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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